Price of Gold Fundamental Daily Forecast – Optimism Over Tax Reform Should Limit Gains

Gold futures are trading higher Monday, shrugging off earlier weakness related to concerns that the U.S. tax reform bill will become a law later in the week. Increased demand for higher-risk assets were also capping gains. Gold turned higher after the U.S. Dollar weakened.

At 0800 GMT, February Comex Gold futures are trading $1259.80, up $2.30 or +0.19%.

The focus for gold traders today will be progress toward tax reform. On Tuesday, the Senate could pass the tax code overhaul and present it to President Donald Trump for his signature before the week is over.

This is potentially bearish news because it will likely lead to another surge in U.S. equity markets. Gold competes with stocks for investment capital. With more investors pouring money into stocks, gold prices have been sliding lower.

Gold prices turned higher last week, partly due to oversold conditions and a “dovish” outlook for future rate hikes by the U.S. Federal Reserve. This news was enough to shake the tree and drive out a few of the weaker shorts, but over the long-run, rising interest rates will keep a lid on gold prices.

In other news, hedge funds and money managers cut their net long positions in COMEX gold contracts in the week to December 12, U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.

Looking at the big picture, barring any unexpected event, gold prices are likely to be pressured over the near-term due to rising U.S. Treasury yields, a firmer U.S. Dollar and a strong performance in U.S. equities.

Any unforeseen glitches in the passing of the U.S. tax overhaul in a timely manner, could be supportive for gold, but this will be a short-term reaction and likely fueled by more short-covering rather than new buying.

If there is a spike to the upside in prices, gains will likely be limited by a retracement zone at $1270.30 to $1278.50.

On the downside, the first target zone is $1251.40 to $1248.30.